‘IT MADE NO SENSE’: THE DAY THE WORLD CHANGED – WHAT REALLY HAPPENED?
IT WAS August 9, 2007 when Merrill Lynch trader Alexis Stenfors got the call that would change his life.
The young banker was chopping wood in Sweden when a colleague phoned, spouting “crazy” numbers that didn’t make sense.
“I wrote down various numbers, prices that he mentioned,” Mr Stenfors told news.com.au. Sitting down moments later, he quickly realised: “I hadn’t seen anything like it before.”
He immediately booked a flight to London and launched himself into two years of work that would leave him physically and emotionally wrecked, disgraced and banned from his job for hiding $456 million worth of losses at the US banking giant.
While Stenfors didn’t know it at the time, August 9 would later be dubbed “the day the world changed” as the start of the worst financial crisis since the Great Depression.
The author of Barometer of Fear — which tells the inside story of the “greatest banking scandal in history” — said his “fairly boring” job trading interest rate swaps became the epicentre of a frenzied trading floor fuelled by rumour and fear.
“A lot of this was about figuring out who could possibly go under. Which bank is in bad shape? How do you figure that out? You rely on hearsay and rumours to an extent,” he said.
“We traded billions and trillions with each other and it was impossible to know which banks were exposed to another bank in the whole financial system.”
Alexis StenforsSource:Supplied
Traders in 2008 had no way of knowing the extent of the toxic debt that had permeated the entire financial system.Source:AP
Trading on the floor of the New York Stock Exchange in October 2008 where stocks swung wildly as banks tried to work out who had “skeletons in the closet”. Picture: AFP PHOTO/DON EMMERTSource:AFP
One month later, Northern Rock suffered its first run on the bank in 150 years as customers queued to get their money out. By September the next year, Lehmann Brothers had declared bankruptcy marking the start of the full blown crisis that would spread throughout the economy.
At the time, Stenfors said he “couldn’t see the world was going under” and was simply worried about his current trading position. Two years later he was left exhausted after years of waking up to early morning phone calls and suffering from RSI after intense computer training.
Customers queue to take their money out of UK bank Northern Rock in September 2007 as the bank sought emergency funding from the Bank of England. Picture: Chris Ratcliffe/Bloomberg News.Source:Supplied
Back in 2007, the credit crisis spread around the world due to fears of who was exposed to what. Pictured, a currency trader in the foreign exchange dealing room in South Korean bank KEB Hana. Picture: AP Photo/Ahn Young-join.Source:AP
In 2010 he cited the “enormous workload and a prolonged lack of holiday” as rationale for hiding his positions which ultimately lost Merrill Lynch more than $575 million and earned them millions in fines from the Irish financial regulator.
“I was in pain physically, chest pains, weight loss, both mentally and physically,” he said about the workplace where weakness was taboo.
“It’s an environment where you don’t really talk about it that much …. At least then, you didn’t talk about weaknesses where you open up and say “I’m a wreck”. I think many, many people were. I don’t think that was unique.”
AMP Capital Chief Economist Shane Oliver also pointed to the lack of transparency and “financial engineering” that saw the crisis take on a “life of its own” in August 2007 when banks had no way of knowing “what subprime skeletons were in the cupboard.”
“The whole issue was this combination of financial engineering and a lack of transparency,” he said. “Whereas if there had been transparency around who was exposed and who wasn’t, I suspect there would have been less of an issue.”
While Australia famously survived relatively unscathed due to a proactive fiscal stimulus package, low interest rates and demand from China, a recent household income reports shows wage growth has remained stagnant since 2009.
A decade on, governments around the world remain consumed with slashing deficits leading to austerity measures in parts of the UK and Europe. It’s also sparked major debate around financial regulation, corporate responsibility and executive pay with questions over whether enough has been done to change the toxic banking culture.
Ten years on from the crisis, affordability of housing remains an issue in many major cities around the world. Sydney’s prices have sparked fears many homeowners are over-leveraged however AMP capital economist Shane Oliver said this is down to supply and demand rather than the financial crisis.Source:istock
Mr Stenfors said the crisis taught him he had lost his “moral compass” and now advises would-be traders the job is “going to change you as a person”. Now an academic, he said “banks were doing something completely different from what they were supposed to do” and recognises his own role in “sustaining and promoting” the environment that led to it.
“Financial markets had become too much about backstabbing, not serving clients, taking too many risks …[It’s] a painful wake up call for how do we put things right again?”
As for whether it could happen again, Oliver is in no doubt regulators and finance workers should be on guard.
“Of course it can happen again. History doesn’t repeat but it does rhyme …. There will be another one but it won’t quite be the same as the previous one.”
– http://www.news.com.au
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